Solar power generation from rooftop installations is expected to soar over the next five years given declining costs, facilitating policy measures and incentives to consumers. However, the government’s target of generating 40% of the 100gw capacity planned by 2022 from rooftop solar could prove a herculean ask.
CRISIL Research foresees rooftop capacity touching only 12-13 gw by 2022, which in itself would be no mean feat given that installed capacity (grid connected and off-grid) was just ~1 gw at the end of September 2016.
Over half of this, or ~7gw, is expected to be added by Delhi, Gujarat, Maharashtra, Andhra Pradesh, Telangana, Karnataka and Tamil Nadu, given incentives such as capital subsidy, high feed-in tariffs and better proj- ect economics.
Rooftop projects are attractive for industrial and commercial consumers such as malls, hospitals, government establishments and high-consumption group residential complexes. In particular, the net metering scheme – under which power generated can be consumed captively and any excess sold to the grid – augurs well for those paying over Rs 5.5 per unit.
Consumers can also increase their proj- ect returns or reduce generation costs by claiming accelerated depreciation benefit. This fiscal, the cost of generating rooftop solar power is estimated to be ~Rs 5.5 per unit for projects not claiming accelerated depreciation benefit and ~Rs 4.5 per unit for those availing of tax incentives. With further decline in module prices and increase in grid tariffs, the economics of rooftop solar would be even more favourable going forward.
However, for residential and agricultur- al consumers, there is limited economic incentive to set up a rooftop project on net metering basis as their tariffs are cross-sub- sidised by industrial and commercial users, and therefore are lower. For such consum- ers, the economics would be favourable only if they are allowed to install projects more than ~2.5x their connected load (currentrestriction is 0.5-0.8x). This would enable them to meet their electricity needs and earn revenue for additional electricity sold to discoms at the average power pur- chase cost, or APPC, tariff.
Thus, while favourable economics will drive capacity addition in commercial and indus- trial segments, the domestic category is likely to pick up only after rationalisation of tariffs by regulatory commissions, whichwe see happening only around fiscal 2020.
Then there are other roadblocks, includ- ing weak infrastructure of power distri- bution companies, poor implemen- tation of open access and net meter- ing (e.g,interconnectivity issues, cap on capacity,etc), and cheaper solar power available from ground-mounted projects. Limited availability of affordable finance, poor enforcement of contractual obliga- tions and potential grid variability also stand in the way.
CRISIL Research believes some of these challenges could be overcome through timely and effective implementation of announced policies at the state and district level. For instance, resolving interconnec- tivity issues by training discom staff, and utilising funds available through central government programmes including the IntegratedPower Development Scheme and the DeendayalUpadhaya Gram Jyoti Yojana. Also, higher degree of comfort to the investor community through dispute redressal forums, provision of guarantees, and access rights would be critical.
Over the long term, we expect the third- party model – the renewable energy ser- vice companyor RESCO model, where the project developer leases the rooftop – todominate the market.This model has clear advantages such as no upfront costs, efficient design, lower equipment procure- ment cost, and better operational know- how. Consequently, even in developed markets, this model dominates.
Meanwhile, technology disruptions leading to falling prices of battery storage systems – just the way prices of solar modules have slid since 2011 -- is expected to emerge as the next big driver for large-scale roof- top adoption. With continuous innovation and rising scale of production, battery costs, which reduced to $350 per kWh in 2015 from $1,000 per kWh in FY 2010, are expected to fall further to ~$100 per kWh by 2022. We expect the rooftop-based capacity additions to rise after fiscal 2019, led by declining battery prices.
A steeper-than-anticipated drop in battery storage system prices would provide a significant boost, particularly to residential and agricultural adopters of rooftop installations.
Credits: Mr. Rahul Prithiani, Director, CRISIL Research